The real estate industry experienced a seismic shift in 2024 that fundamentally changed how commissions work. Following a landmark $418 million settlement by the National Association of Realtors (NAR), the rules governing real estate commissions have been rewritten, creating both opportunities and challenges for real estate investors.
If you’re an investor who’s been operating under the old commission structure, you need to understand these changes immediately. The new landscape affects every aspect of your investment strategy – from acquisition costs to exit strategies, from cash flow calculations to portfolio valuations. This guide will walk you through everything you need to know about real estate commissions in this new era, including creative strategies to minimize or eliminate them entirely.
Whether you’re a buy-and-hold investor, fix-and-flipper, or someone exploring creative financing strategies, understanding the nuances of real estate commissions can mean the difference between a profitable investment and a mediocre return. Let’s dive into how the game has changed and how you can turn these disruptions into profit opportunities.
Traditional Commission Structure: How It Used to Work
First, let’s dispel a major myth: there has never been a “standard” real estate commission. Despite common references to 5-6% total commissions, these rates have always been negotiable between clients and agents. The recent lawsuit was largely about the appearance of standardized rates and the lack of transparency in how commissions were determined and communicated.
Under the traditional model, sellers typically paid all commissions from their proceeds, with the total amount split between the listing agent and buyer’s agent. While commission rates commonly ranged from 5-6% total, savvy negotiators could often secure lower rates, especially on higher-priced properties or multiple transactions.
The MLS played a crucial role in this system by displaying the compensation offered to buyer’s agents directly in property listings. This visibility created a controversial dynamic where buyer’s agents could potentially steer clients toward properties offering higher commissions.
What many investors failed to realize is that the value proposition between agents varies dramatically. A rookie agent fresh out of licensing school often charged the same commission as a seasoned professional with decades of experience and a vast network. The irony? The experienced agent could often net you more money even at the same commission rate through superior negotiation skills, market knowledge, and transaction management.
This lack of differentiation in pricing despite vast differences in service quality and expertise was one of the factors that made the industry ripe for disruption. Smart investors always knew to interview multiple agents and negotiate based on value provided, not just accept the first rate quoted.
The NAR Lawsuit and Settlement: What Changed Everything
The foundation of the old commission structure began crumbling in 2019 when home sellers in Missouri filed a class-action lawsuit against NAR, alleging antitrust violations. The plaintiffs argued that NAR’s rules artificially inflated commissions by requiring sellers to offer compensation to buyer’s agents as a condition of listing on the MLS.
In October 2023, a jury delivered a stunning verdict: $1.8 billion in damages against NAR and major brokerages. This verdict sent shockwaves through the industry and led to a flurry of copycat lawsuits across the country. Facing potentially catastrophic financial exposure, NAR agreed to a $418 million settlement in March 2024.
The settlement, which took effect on August 17, 2024, didn’t just involve money – it mandated fundamental changes to how real estate commissions are handled. The agreement covers NAR, over one million NAR members, all state and local REALTOR® associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below.
For investors who sold properties in recent years, there’s a silver lining: you may be eligible for a portion of the settlement fund. If you sold a home between October 31, 2019, and August 17, 2024, and the property was listed on an MLS, you could qualify for compensation. The exact eligibility dates vary by location, with some areas extending back as far as 11 years.
This settlement represents the most significant change to real estate commissions in over a century, fundamentally altering how buyers and sellers interact with agents and negotiate compensation.
New Commission Rules: The Post-Settlement Landscape
The new rules fundamentally restructure how commissions are communicated and negotiated. Here are the key changes every investor must understand:
- Prohibition of Compensation Offers on MLS – The most dramatic change is that offers of compensation to buyer’s agents can no longer be displayed on MLS platforms. This doesn’t mean sellers can’t offer to pay buyer agent commissions – they just can’t advertise it on the MLS. Compensation discussions now happen through direct agent-to-agent communication, during offer negotiations, or through other marketing channels.
- Mandatory Buyer Representation Agreements – Before showing any property, buyer’s agents must now have a written agreement with their clients. This agreement must clearly state the agent’s compensation rate and include a conspicuous disclosure that commissions are fully negotiable. No more informal relationships or “testing out” multiple agents while home shopping.
- Seller Concessions Still Allowed – While commission offers are banned from the MLS, sellers can still offer concessions that buyers can use for closing costs or other expenses. Strategic investors can structure these concessions in ways that effectively cover buyer agent compensation while maintaining negotiating flexibility.
- Off-MLS Negotiations – Commission discussions haven’t disappeared – they’ve moved to different venues. Agents communicate about compensation through phone calls, emails, and during showing appointments. Listing agents might mention commission offerings when contacted by buyer’s agents, and compensation can be negotiated as part of the purchase offer.
These changes create a more complex but potentially more flexible environment for commission negotiations. Investors who understand these new dynamics can leverage them for significant savings.
Impact on Real Estate Investors: Opportunities and Challenges
The new commission landscape affects investors differently depending on their strategy and position in the transaction:
- As a Buyer/Investor – You now have unprecedented leverage in negotiating buyer agent commissions. Since you must sign an agreement upfront, you can shop around for the best combination of service and price. Consider negotiating lower rates for multiple purchases, flat fees for simple transactions, or performance-based bonuses for finding off-market deals. However, you also need to budget differently. Without guaranteed seller-paid commissions, you might need to pay your agent directly. Some investors are financing these costs into their mortgages (where allowed), while others negotiate for seller concessions to cover them.
- As a Seller/Investor – You have more control over your total commission outlay. You can choose to offer buyer agent compensation strategically – perhaps offering it in slow markets to attract more buyers, or eliminating it in hot markets where buyers are competing. This flexibility allows you to optimize your net proceeds based on market conditions.
- For Fix-and-Flip Investors – You’re hit on both sides of the transaction. Your acquisition costs might increase if sellers aren’t paying buyer agent commissions, and you’ll need to decide whether offering buyer agent compensation on the sale will help you move properties faster. Run your numbers with various commission scenarios to find the sweet spot for profitability.
- For Rental Property Investors – While commissions don’t affect your ongoing operations, they significantly impact your entry and exit strategies. The cumulative effect of commission savings across a portfolio can be substantial. Consider how the new rules affect your long-term hold versus sell decisions.
Creative Strategies to Avoid or Reduce Commissions
Smart investors have always looked for ways to minimize transaction costs. Here are proven strategies that work especially well in the new commission environment:
- Lease-Option Exits – One of the most powerful strategies is using lease-options, particularly the Nomad™ strategy with a lease-option exit. By giving your tenant the option to purchase, you can avoid listing the property and paying selling commissions entirely. The tenant-buyer is motivated to exercise their option, you get your price, and both parties save on commissions. Plus, you may receive tax benefits from the installment sale treatment.
- Direct Sales to Tenants – Before listing a rental property, always approach your current tenant first. They already know and love the property, making them ideal buyers. Extend this strategy by marketing to tenants in your other properties – they might be ready to move up from their current rental. Some investors include a “first right of refusal” clause in their leases, giving tenants the opportunity to purchase before the property hits the market.
- Property Management Agreement Considerations – Here’s a hidden trap many investors miss: some property management agreements include clauses requiring you to list the property with the management company if you decide to sell. Even worse, some agreements entitle the manager to a commission if your tenant purchases the property – even in a private sale! Always negotiate these provisions out of your PM agreements or at least understand their implications.
- For-Sale-By-Owner (FSBO) Strategies – With modern technology, FSBO is more viable than ever for investors. Platforms like Zillow, Craigslist, and Facebook Marketplace give you direct access to buyers. For investors with multiple properties in an area, building a reputation as a direct seller can create a pipeline of interested buyers. However, be realistic about your skills and time availability – sometimes paying a professional is worth it.
Getting Your Real Estate License: Pros and Cons for Investors
Many investors consider getting their real estate license to save on commissions. Let’s examine this strategy honestly:
- Potential Savings on Commissions – If you’re doing multiple transactions annually, the math can work. Calculate your break-even point by adding up licensing costs, MLS fees, continuing education, and E&O insurance, then divide by your typical commission amount. Most investors need at least 2-3 transactions per year to justify the expense and effort.
- The Ultimate Real Estate Agent Retirement Plan™ – This powerful strategy combines the Nomad™ approach with having a real estate license. When you buy your next investment property, use your commission to either negotiate a lower purchase price or get a rebate toward your down payment. This can dramatically improve cash flow by reducing your mortgage amount or allow you to purchase with less money down. Over time, these commission savings compound into serious wealth.
- Hidden Costs of Being Licensed – Beyond the obvious fees, consider the time investment. You’ll spend hours on continuing education, managing your license, and staying compliant with regulations. There’s also liability – errors and omissions can lead to lawsuits. Plus, in some states, having a license creates additional disclosure obligations that can complicate negotiations.
- The “Fool for a Client” Principle – The old saying “a person who represents themselves has a fool for a client” applies here. Even experienced investors can benefit from an agent’s emotional detachment and negotiation expertise. Your attachment to your own property can cloud judgment and lead to poor decisions.
- Alternative: Team Up with an Agent – Instead of getting licensed, consider building a relationship with an investor-friendly agent. Negotiate volume discounts, flat fees for simple transactions, or even revenue-sharing arrangements. Some investors form joint ventures with agents, splitting profits instead of paying commissions.
True Net Equity™ and Real Estate Commissions
Most investors calculate their equity by subtracting their mortgage balance from their property’s market value. This is a dangerous oversimplification that ignores the reality of transaction costs. True Net Equity™ represents what you’d actually receive if you sold today.
Consider this example: You own a property worth $300,000 with a $200,000 mortgage. Your gross equity is $100,000. But if you sold with traditional 6% commissions plus 2% in other closing costs, you’d pay $24,000 in transaction costs. Your True Net Equity™ is only $76,000 – nearly 25% less than the gross number!
In the new commission environment, your True Net Equity™ becomes more variable. If you can sell without offering buyer agent compensation, you might only pay 3% in total costs. If you use creative strategies like lease-options or direct tenant sales, you might pay nothing. This variability makes it crucial to plan your exit strategy when you buy, not when you’re ready to sell.
Dynamic equity calculations require considering multiple scenarios. What’s your True Net Equity™ if you sell traditionally? What if you FSBO? What if you seller-finance? Understanding these numbers helps you make better hold versus sell decisions and prevents overestimating your wealth.
True Net Worth™ Calculations for Real Estate Portfolios
The True Net Equity™ concept becomes even more critical when applied across an entire portfolio. Your True Net Worth™ accounts for the transaction costs embedded in all your properties.
Let’s say you own 10 properties with a combined market value of $3 million and total mortgages of $2 million. Your gross portfolio equity is $1 million. But if you had to liquidate everything with 6% commissions, you’d pay $180,000 just in agent fees. Add other closing costs, and your True Net Worth™ might be $200,000+ less than you think.
This portfolio-wide commission liability affects major financial decisions. When considering refinancing, remember that cash-out proceeds don’t have commission costs, while selling does. For estate planning, use True Net Worth™ figures so your heirs aren’t surprised by transaction costs. Some investors are shocked to discover their “million-dollar portfolio” would net them far less if liquidated.
Strategic planning with True Net Worth™ means building exit strategies that minimize transaction costs. Perhaps you sell some properties traditionally, use lease-options for others, and hold the best cash-flowing properties indefinitely. Understanding these numbers helps you optimize your portfolio for both current cash flow and future wealth.
Commission Negotiation Strategies for Investors
In the new environment, negotiation skills are more important than ever. Here are proven strategies for minimizing commission costs:
- Leveraging Volume for Better Rates – If you’re doing multiple transactions, negotiate package deals. Offer agents guaranteed business in exchange for reduced rates. Some investors negotiate annual retainers covering all transactions at discounted rates. Others create “preferred partner” relationships with commission tiers based on volume.
- Alternative Commission Structures – Think beyond percentage-based commissions. Flat fees work well for simple transactions or experienced investors who need minimal hand-holding. Hourly consulting arrangements let you pay only for the services you need. Performance bonuses incentivize agents to find better deals or achieve higher sale prices.
- Building Strategic Agent Relationships – The best commission negotiations happen before you need an agent. Build relationships during calm periods, not when you’re desperate to buy or sell. Offer value beyond just transactions – referrals, testimonials, or partnership opportunities. Agents are more flexible with clients who contribute to their long-term success.
- Technology-Enabled Alternatives – Discount brokerages offering 1-1.5% listing fees have proliferated. Companies like Redfin, Clever, and others provide full service at reduced rates. For quick sales, iBuyer programs from Opendoor, Offerpad, or Zillow eliminate traditional commissions (though their offers typically reflect this savings). Digital-first brokerages can handle simple transactions efficiently at lower costs.
Tax Implications and Commission Strategies
Real estate commissions have important tax implications that vary based on the property type and transaction structure:
- Deductibility of Commissions – For investment properties, commissions are typically added to your basis when buying or reduce your proceeds when selling, affecting your capital gains calculation. For flips held less than a year, commissions are ordinary business expenses. The timing of these deductions can significantly impact your tax liability.
- Commission Structuring for Tax Efficiency – How you structure commission payments can affect your taxes. Seller concessions might be treated differently than commission credits. In 1031 exchanges, commission handling can affect your reinvestment requirements. Work with a tax professional to optimize the structure for your situation.
- Impact on Depreciation Basis – When buying investment properties, commissions paid increase your depreciable basis, providing additional tax deductions over the holding period. This makes paying buyer agent commissions more palatable for long-term holds, as you recover part of the cost through depreciation.
Regional Variations and Market Considerations
The impact of commission changes varies significantly by location and market segment:
Some states already required buyer representation agreements before the NAR settlement, making the transition smoother. Others are experiencing more disruption. States where commission rebates are legal offer additional opportunities for savings, while states that prohibit them limit your options.
In hot seller’s markets, buyers are more willing to pay their own agent commissions to win competitive bids. In buyer’s markets, sellers still need to offer incentives to attract offers. Luxury markets often have more commission flexibility, while entry-level markets may stick to traditional structures due to buyer financial constraints.
International investors face additional complexities, as commission structures vary dramatically by country. Some investors are surprised to find U.S. commissions are actually moderate compared to some international markets.
Local MLS rules can vary even within states. Some MLSs have implemented the minimum requirements, while others have gone further. Understanding your local variations is crucial for optimizing your strategy.
Future Outlook and Adaptation Strategies
The commission landscape will continue evolving. Here’s what investors should prepare for:
Industry experts predict average commission rates will decline over the next few years as competition increases and transparency improves. Technology will play an increasing role, with AI-powered platforms potentially replacing some agent functions. The Department of Justice continues monitoring the situation and may push for additional changes.
Federal policy changes could significantly impact investors. The Federal Housing Finance Agency is considering allowing buyer agent commissions to be financed into Fannie Mae and Freddie Mac mortgages, which would reduce the burden on cash-strapped buyers.
Position yourself for success by building flexibility into your investment models. Don’t assume any particular commission structure when analyzing deals. Develop relationships with multiple agents and alternative service providers. Stay informed about local market changes and regulatory updates.
Most importantly, view these changes as an opportunity. Markets in flux create opportunities for prepared investors. Those who adapt quickly to the new commission reality will have a competitive advantage over those clinging to old models.
Alternative Investment Strategies and Commission Implications
Beyond traditional buy-and-sell approaches, numerous investment strategies can help you minimize or eliminate commission costs:
- Wholesaling – Assign contracts without taking title, avoiding agent commissions entirely while earning assignment fees that can exceed typical commissions
- Subject-to Deals – Take over existing mortgages without traditional financing, often negotiated directly with distressed sellers without agent involvement
- Real Estate Syndications – Passive investors pay sponsor fees (typically 1-3% acquisition fee) instead of agent commissions, while sponsors may still pay commissions on large acquisitions
- Auction Platforms – Properties sold through auction typically have lower or fixed commission structures, sometimes as low as 1-2% total
- Commission Rebate Programs – In states where legal, buyers can receive rebates from their agents, effectively reducing the net commission paid
- Buyer Rebates – Negotiate with buyer’s agents to rebate a portion of their commission at closing, which can fund repairs or reduce purchase price
- Creative Financing (Seller Financing) – Direct negotiations with sellers eliminate agent commissions while providing flexible terms for both parties
- Lease-Purchase Agreements – Control property without immediate purchase, deferring or eliminating commission costs while building equity
- Tax Liens and Deeds – Acquire properties through tax sales without real estate agents, though title issues may require legal expertise
- Probate and Estate Sales – Work directly with estate attorneys and executors, sometimes avoiding traditional commission structures
- Short Sales – While agents are often involved, distressed nature can lead to negotiated reduced commissions
- REO Properties – Bank-owned properties may have predetermined commission structures, often lower than traditional sales
Conclusion
The transformation of real estate commissions represents both the end of an era and the beginning of unprecedented opportunities for savvy investors. The old model of standardized commissions paid by sellers is giving way to a more transparent, negotiable, and flexible system that rewards knowledge and preparation.
Success in this new environment requires understanding that commissions were never truly “standard,” leveraging the new rules to your advantage, and implementing creative strategies to minimize transaction costs. Whether through direct negotiation, alternative transaction structures, or strategic use of professional licenses, investors have more tools than ever to optimize their commission expenses.
Remember to calculate your True Net Equity™ and True Net Worth™ using realistic transaction costs, not optimistic assumptions. Build relationships with quality agents who provide value beyond their commission rate. Most importantly, view these industry changes as an opportunity to gain a competitive edge, not an obstacle to overcome.
The investors who thrive in the coming years will be those who adapt quickly, negotiate effectively, and creatively structure transactions to minimize costs while maximizing value. The commission landscape has changed forever – make sure you’re positioned to profit from it.